Cairn eyes more ‘active’ approach as losses widen

ERIKKA ASKELAND

CAIRN Energy will put 18 months of reshaping behind it and “get extremely active” with a drilling programme that should help transform its financial fortunes, chief executive Simon Thomson said yesterday.

The plans for the second half of the year, and beyond, came as the Edinburgh-based group posted interim pre-tax losses of $372.6 million (£237.6m) yesterday, compared with $50m a year earlier, mainly due to a fall in value of the company’s 10 per cent stake in Cairn India.

It noted that there has since been a recovery in the share price of the Indian company as it booked a $268m write-down on its remaining stake in the operation, which it sold for £3.6 billion in 2011.

Thomson said the Indian firm’s shares were “undervalued” and that Cairn was “in no rush” to sell its remaining stake.

The second half of the year will see the Scots group agree a drilling schedule for its programme off the coast of Greenland, on the Pitu block, with joint venture partner Statoil.

Cairn risks fresh condemnation from environmental activists as it negotiates with authorities to use just a single rig in its next campaign, which it expects could start in the second half of 2014.

The company used two rigs during its last exploration of the area to mitigate spill risk. Two years ago, Greenpeace campaigners boarded one of Cairn’s rigs, the Leiv Eiriksson, in a bid to stop it drilling in Arctic waters.

Thomson said the decision on whether to use one or two rigs in Greenland was subject to “ongoing discussion”, adding it would be “premature to make a final comment on that”.

He said: “We – and that’s not just Cairn but the industry in Greenland – are making good progress with the Greenland authorities in terms of finding the right solution to drilling and that right solution might not be two rigs.”

The group said it will drill at least five exploration wells over the next 12 months, two off the coast of Morocco, two off the coast of Senegal, and one off the west coast of Ireland. Spending on so-called “frontier” exploration in the 2013-14 period will come in at $510m..

Thomson said: “It has been almost two years of rebuilding, refining, honing this company to look the way we want it to look in terms of getting that balanced portfolio right and ensuring we have sufficient financial flexibility in terms of balance sheet strength.

“We have done everything we said we would do at the beginning of last year. We are now at a point where we are about to get extremely active.”

Analysts at broker Jeffries said: “The long wait for the start of Cairn’s high-impact drilling programme is nearly over”.

It rated the company’s stock as a “buy”, noting that its market value of about £1.7bn was “trading close to cash plus tangible assets”, meaning the potential upside of any finds coming from a result of the company’s exploration programme have not been priced in.

Lang Banks, WWF Scotland director, called on Cairn to “abandon its Arctic oil plans and hand back its licences”.

Cairn was founded by its non-executive chairman Sir Bill Gammell, who now holds a minor stake in the firm worth some £1.6m.